In normal drive position I am only getting rear wheel drive, if I put the lever into low ratio and drive I get a loud bag from the rear of the vehicle when driving in a straight line. The vehicle in a Jeep grand cherokee 1999 4.7 V8

I think that version of the Cherokee needs you to be travelling at less than 3 mph to change your ratios. Try this...
Come to a complete stop. Keep your foot on the brake or apply the park brake. Put the vehicle into neutral. Firmly slide the 4wd lever to the ratio you want. Put it back in gear, as you would normally, and drive. Try to keep the 4wd lever out of the N position.

Turn on the vehicle.
Hold the brake petal down.
Shift into neutral.
Pull the 4WD lever and shift into 2WD High.

Does placing it in neutral put the entire drive in neutral???? Yes . Taking the vehicle to a qualified repair shop that has a factory or professional scan tool to read code's in the transfer case control module is what you should do , you probably have no clue of the complexity of these 4X4 systems . How many buttons on the switch on the instrument panel ?
The BW 4493/4494 transfer case features a 4-button shift control switch (1) located on the instrument panel. When the vehicle has the ignition key in the RUN position, the transfer case shift control module starts monitoring the transfer case shift control switch to determine if the driver desires a new mode/gear position. At a single press of the transfer case shift control switch, the lamp of the new desired position begins flashing to inform the driver that the transfer case shift control module has received the request for a new mode/gear position. The lamp continues to flash until all shifting criteria have been met and the new mode/gear position has been reached, or has been engaged. Once the new mode/gear position is fully active, the switch indicator lamp for the new position remains ON constantly.

During normal driving situations, the transfer case operates in the 4HI mode. When the 4HI mode is selected, the transfer case shift control module sends 12-volts to an electrical motor, which is the transfer case encoder motor. This motor rotates the transfer case shift detent lever shaft which moves the shift forks and range sleeve to obtain different modes/ranges.
The BW 4493/4494 transfer case has the added feature of also providing the driver with 3 manual mode/range positions:
• 4HI - 4-Wheel Drive High Open
• 4HI Lock - 4-Wheel Drive High Locked
• 4LO Lock - 4-Wheel Drive Low Locked
The driver may choose to select any of these mode/range positions while driving the vehicle. However, the transfer case will not allow a shift into or out of 4LO Lock unless the following criteria has been met:

DTC B0790 Transfer Case Neutral Indicator Circuit Malfunction
DTC B2725 ATC Mode Switch Circuit Malfunction
The mode switch circuit consists of 5 modes. The transfer case shift control module supplies a regulated 5 volts, DC to the switch through the 5-volt regulator circuit. The current travels through the resistor of the currently pressed mode button. The current is then returned to the transfer case shift control module through the switch signal circuit.
The transfer case shift control module constantly monitors this signal voltage to determine the condition of the mode switch circuit.
When each of the modes are selected they will complete a circuit through their own specific resistor while the button is pressed. The transfer case shift control module continuously monitors the switch input to determine whether the Neutral, Differential Lock, 4HI, 4HI Lock, or 4LO Lock mode was selected by the driver.

DTC C0306 Motor A or B Circuit Malfunction
The transfer case motor is a bi-directional, permanent magnet, D.C. motor. When energized, through motor control A or motor control B, the ground is provided by the opposing motor control circuit and then grounded through the transfer case shift control module ground circuit, the motor, through a series of gears, rotates a shaft which moves the mode and range forks to shift the transfer case between the following ranges:
• 4HI
• 4HI Lock
• 4LO Lock
• Neutral
This DTC detects an open, short to voltage, or short to ground in the motor control A or motor control B circuits, or an open, or short to ground inside the motor.

DTC C0327 Encoder Circuit Malfunction
DTC C0329
DTC C0359
DTC C0550

The Borg Warner (BW) model 4493/4494 NR4 transfer case is a 2-speed, full-time 4WD, transfer case. The transfer case has an external planetary type differential, which has 2 different sets of pinion gears. The planetary differential provides a 40/60 torque split front/rear full-time. This means the front and rear propeller shafts are constantly being driven for maximum traction in all conditions. A high/low planetary carrier assembly provides the high and low ranges, which is a 6-pinion gear, sun gear, and annulus gear arrangement, giving a 2.64 low range reduction ratio in the BW 4493 and a 4:1 ratio in the BW 4494.

Not all cherokees were fitted with a 2 wheel drive option. You should have two shift sticks in the centre console. Your normal Park, Reverse and Drive selector and a smaller, shorter stick to the left of it.
This shorter stick will show you your drive options.
If you only have the first three listed yours is permanently 4 wheel drive, sometimes called AWD, (All Wheel Drive).
Starting furthest away from the engine, they should read as...
4Lo - Low ratio 4 wheel drive used just for 'off road' driving.
N - Neutral. This disconnects ALL drive to ALL the wheels.
4 FULL TIME - High Ratio 4 wheel drive. Normal road 4
wheel drive.
"Options that might not be fitted".
4 PART TIME - Automatically switches from 2 wheel drive
to 4 wheel drive if the rear wheels start to lose grip.
2WD - Dedicated 2 wheel drive only. Power is sent to the
rear wheels.

Assuming yours is the 2 gear stick layout this is roughly how it works.
ONLY CHANGE BETWEEN 2 AND 4 WHEEL DRIVE WHEN STOPPED, IN NEUTRAL AND WITH THE PARKING BRAKE ON!!
The smaller gear shift should be to the left of the normal gearstick.
It should be in the fully forward position. This means it is in 2 wheel drive, high ratio, for normal road driving. (Rear wheels).
Pulling the stick back ONE notch engages 4 wheel drive, high ratio. Used for snowy, icy, slippery conditions as well as light off roading. (Keep the speed under 50mph).
Pushing down and back another notch engages neutral in the transfer box. This means ALL drive is DISCONNECTED even if you use the normal gearbox.
**Try to avoid this one**!!
Pulling the stick back the last notch engages 4 wheel drive, LOW ratio. This is for the more extreme off roading conditions such as VERY steep hills. Not usually used in normal day to day driving.
The two fully forward positions, (2High and 4High), will be the ones used the most.

Your truck under "normal" driving conditions you want in 2 wheel drive. The indicator on your shifter should either show as 2H or 4x2 or have a picture of the rear wheels only.

Hi it could be a number of problems, if its automatic it could be low fluid or blocked filter. Faulty selector or damaged cable. If its manuel the clutch could be gone or a broken drive shaft.

all wheel drive vehicles have to work at both ends all the time unless you have a major failure in the drive train. That is why it is called all wheel drive as opposed to 4 wheel drive. With 4 wheel drive you have the option of rear wheel drive or 4 wheel drive and normally in a high ratio or low ratio gear selection. With some all wheel drive vehicles there is a selector that locks the middle diff and creates a 4 wheel drive option without the high/low gear ratio option. So in practice if the both front wheels are in the bog then there is no all wheel drive as the centre diff is working as it should and placing all the action in the rear wheels which will not be turning as they have traction so the front wheels spin faster.. If you have a centre diff lock option ensure that it is operational.

High to low /low to high ratio, you will need to be stopped and the transmission in neutral for this to be changed.
The 2wd - Auto - Lock switch can be switched at any time, as it operates an electromagnetic clutch - 2wd is rear wheels driving only - Auto - is to automatically engage 4wd when wheel slippage is detected (this also happens when turning at intersections, due to the inside wheels having a shorter path to the outside wheels, and can give a binding effect on sealed roads (I don't drive with it in auto on sealed roads) auto is excellent if you get, or expect wheel spin from an intersection when wet, just flick it on before or when you have wheel spin, also on gravel roads, having it on auto will greatly reduce the sliding of the back end, and make the car noticeably more stable.
Lock - this locks the differential, which further reduces wheel spin, when in mud / snow, but this will also make the car not want to turn corners, due to it resisting the different distances traveled by the inside and outside wheels.
A/T switch - this actually has 3 positions, and changes the shifting points of the automatic transmission - the middle is normal - Hold is to hold the gear longer, to improve fuel economy, and not change down (kick down) as quickly - Power has the opposite effect, it makes the transmission change down sooner under acceleration.
Also the O/D (overdrive) button on the side of the Tee shift lever, is to engage / disengage overdrive (5th gear) - never do heavy towing in overdrive, this will cook the transmission and overheat the engine (due to the radiator being used as a heat exchanger for the transmission fluid.
Another little quirk - if the transmission light starts flashing every 40 to 50 km, this can indicate that the wheels are different diameters (a flat tyre, or tyres have been swapped around and the spare is more or less worn than the other tyres), the computer will pickup that the wheels are turning at different speeds.
When cold, it is normal for the transmission to stay in 3rd (2-3 minutes of driving), until it has warmed up, and then stay in 4th for a few more km's (5-6 minutes), before it has warmed up enough to change into 5th (overdrive).

Take the actuator off and see if it is moving fully to all positions. While it is off see if you can manualy put truck in 4 low and 4 high.